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Malaysia plans scholar certification to cement Shariah hub lead

Mr Umar Munshi (right), a director with Amanah Asset Management (AAM), shaking hands with Islamic Syariah Research Academy (Isra) representative Professor Dr Ashraf Md Hashim on May 29 2013, after they signed a memorandum of understanding (MOU) to offer more courses on Islamic banking and finance.

[KUALA LUMPUR] Malaysia is seeking to enhance its position as a global Islamic finance hub with plans to become the first nation to make certification for Shariah scholars compulsory.

The Association of Shariah Advisors in Islamic Finance Malaysia will start offering its Continuing Professional Enhancement program by the end of June, covering Islamic law, finance, insurance and capital markets, Deputy President Ashraf Md Hashim said in a July 6 interview. While central bank regulations don't currently require scholars in Malaysia to have accredited documentation, the majority of a bank's minimum five- member compliance committee must possess at least a bachelor's degree in Shariah law.

The association is in talks with Bank Negara Malaysia to make the CPE qualification mandatory for those wishing to become experts in the Shariah-compliant industry, Mr Ashraf said. While other institutions such as the Bahrain-based Accounting and Auditing Organization for Islamic Financial Institutions offer such courses with accreditation they are voluntary, according to Kuala Lumpur-based law firm Lee Hishammuddin Allen & Gledhill.

"For the older generation it was hands-on training, we learnt from experience, but that takes a longer time, say 10 to 15 years," 47-year-old Mr Ashraf said in Kuala Lumpur. "When you have certified professional Shariah advisers, banks and the industry will know these people have certain skills and they can appoint them without any reluctance."

Islamic law forbids the payment of interest and involvement in businesses deemed as unethical such as those associated with gambling, alcohol and some entertainment establishments. It also embraces both profit- and risk-sharing.

Scholars are employed to ensure compliance and must give their approval before Islamic products such as funds, stocks and bonds can be marketed. A well-respected expert can charge between US$500 and US$1,000 an hour in the Middle East, two scholars, who declined to be named due to the sensitivity of the issue, said in interviews in August.

"We see the need to have an accreditation body as a natural process of organic growth of any industry and not just Islamic Finance," said Raj Mohamad, managing director at Five Pillars Pte, a Shariah finance consultancy in Singapore. "This will further streamline and strengthen the various infrastructure." The industry has been dependent on a group of "highly credentialed" and qualified scholars for their certification needs and the new program will reduce that dependence, Mr Raj said.

"The CPE will guide people towards three levels of certification so that they will be well-equipped with the skills they need, and the same goes for those who do not have a Shariah background," said Mr Ashraf, who is also a member of the central bank's Shariah Advisory Council.

AAOIFI, a standards-setting body, offers a Certified Shariah Adviser and Auditor program which teaches Islamic jurisprudence and the organization's own guidelines on Shariah compliance and review processes, according to its website. Candidates are accredited at the end of the course.

The International Centre for Education in Islamic Finance, or INCEIF, in Kuala Lumpur provides courses such as Masters in Islamic Finance Practice, Masters of Science in Islamic Finance and Doctor of Philosophy in Islamic Finance.

Malaysia's move comes amid scrutiny into the role of scholars after a 2011 report by Funds@Work AG, an investment research company based near Frankfurt, highlighted that some sit on multiple boards, with one in Syria advising 101 entities.

Jail Threat Under central bank regulations, such experts can only sit on one board for each type of Islamic financial institution they represent in the Southeast Asian nation, meaning they can only advise a single bank or insurer at a time. In most countries, there's no limit.

It's not the first step Malaysia has taken to tighten oversight. It established the industry's first code of conduct relating to salaries and accountability in December 2013 and the same year passed a law stating that scholars may be jailed for up to eight years or fined as much as 25 million ringgit (US$6.6 million) if they fail to comply with central bank rules.

"Having this process will help to develop the professionalism of Shariah advisers," Megat Hizaini Hassan, head of Islamic finance practice at the law firm Lee Hishammuddin Allen & Gledhill, said of the CPE program. "It allows for the continuity of Shariah advisers."